Tuesday, May 24, 2016

Dodd-Frank’s part in the destruction of the middle class

“Stagnant Pay Slowing Area House Sales” (Valley News, May 22) misses another culprit: Dodd-Frank.

On July 15, 2015, Federal Reserve Chair Janet Yellen testified to the Senate Banking Committee: “Demand for housing is still being restrained by limited availability of mortgage loans to many potential homebuyers.” [link]

Dodd-Frank tightened the rules on mortgage lending, but the real cause of the 2008 crash was the ever-more-complex bundling of loans to feed the speculative exuberance of investors. Dodd-Frank, as far as I’ve been able to determine, did nothing to protect the housing market from profiteering investors. Indeed, in 2013, the New York Times reported that the same games had resumed. [link] It seems clear that the main purpose of Dodd-Frank was to protect speculators by limiting the risk that expanding homeownership necessarily entails. In other words, it made it much harder for most people to buy a home for themselves.

This is particularly true for the self-employed, independent contractors, contingent workers, and freelancers, who are projected to represent 40% of the workforce by 2020, if they don’t already. At the beginning of 2014, real estate attorney Shari Olefson, quoted by Yahoo Finance, said that “about 20% of people who have mortgages right now will not be able to get qualified mortgages” and that “more people will be pushed into the rental market” (again, benefiting investors – and Dodd-Frank’s tightened rules do not apply to loans for rental properties). [link]

Census Bureau data show homeownership continuing to plummet in every region of the U.S. since a peak in 2004, most dramatically for those under the age of 45. Since housing prices have also plummeted, that indicates a much deeper change than stagnant pay, which has been that way for most Americans since 1965 and slowly declining since 1999.